Argentina offers debt swap at a third of value

Argentina on Thursday offered to swap defaulted bonds at a third of their nominal value in a bid to regain access to financial markets after defaulting on them in 2001.

The proposed restructuring involves US$20 billion in debt and US$9 billion in interest accumulated since 2005 and should be completed within 40 days.

About a quarter of Argentina’s bondholders rejected a settlement in 2005 by then-president Nestor Kirchner, the husband of current President Cristina Kirchner, and waged a legal battle that led to the freezing of the country’s assets in foreign banks.

Argentine Economy Minister Amado Boudou proposed a “discount bond” to institutional creditors with a 66.3 percent discount. The offer includes a warrant linked to the country’s GDP and interest accumulated since 2005 will be paid with an 8.75 percent bond that matures in 2017.

Analysts estimate the discount is only worth 50 percent, so the offer could be considered a generous one as it recently traded at 30 percent.

Boudou said he expected a 60 percent participation by holdout bondholders who had rejected the previous restructuring proposal launched five years ago. They live mainly in the US, Italy, Luxembourg, France, Japan and Germany.

“The swap will be a success,” economist Orlando Ferreres said.

“This generous swap is seeking to end our isolation from the rest of the world,” opposition lawmaker and former central bank governor Alfonso Prat-Gay said. “What remains to be seen is if such generosity will be paid back with access to markets with reasonable rates.”

The offer will formally be made in 10 days and will last for no more than 30 days, Boudou said.

Argentina has a debt in the range of US$15 billion due this year, out of a total of US$147 billion in debt.